State audit: Long Beach overpaid employees more than $500K

Comptroller says separation payments 'inconsistent' with City Code and contracts

Posted
Saturday, August 31, 2019 9:17 am

Jack Schnirman, the former city manager who is now the county comptroller, is among 10 individuals who received separation payments that they should not have, according to a state audit.

Herald file photo

Hopefully, the report will prompt the full council to come together to take the necessary corrective actions now.”

John Bendo, City Council vice president

Key findings

•The city approved $6 million in separation payments for sick and vacation leave to 43 city officers and employees, of which $513,925 in payments to 10 individuals "appear inconsistent” with City Code or contracts.

• The city approved certain payments for unused leave accruals, totaling $229,494 to eight city officers and employees at a time other than at separation from service. "In the absence of specific authorization for such payments," the comptroller said, the “appropriateness” of $224,852, or 98 percent of such payments, was questionable.

• The city failed to take “adequate corrective action in response to two prior audits” that cited leave payments that were inconsistent with the City Code or contracts.

Recommendations

• Amend the City Code to clarify how the city intends to compensate officers and employees for unused leave accruals subject to the City Code.

• Review the separation and drawdown payments identified in the comptroller’s report and “seek recovery of such payments that are inconsistent with the City Code or any other applicable laws.”

By Tony Rifilato and Scott Brinton

The City of Long Beach made $500,000 in separation payouts in 2017 and 2018 for unpaid sick and vacation leave that it should not have — including a payment of more than $50,000 to then City Manager Jack Schnirman, who is now the county comptroller — according to a draft audit report by the state comptroller and obtained by the Herald.

According to the report, which the state provided to the city on Aug. 29, the city approved $6 million in separation payments for sick and vacation leave to 43 city officers and employees, of which $513,925 in payments to 10 individuals “appear inconsistent” with City Code or contracts.

The city also approved payments for unused leave accruals, or “drawdowns,” totaling $229,494, to eight city officers and employees who did not leave the city’s employ, including Corporation Counsel and Acting City Manager Rob Agostisi. “In the absence of specific authorization for such payments,” the comptroller said, the “appropriateness” of $224,852, or 98 percent of those payments, was questionable.

State Comptroller Tom DiNapoli’s office, which examined separation payouts made from July 1, 2017, to June 30, 2018, recommended that the City Council review the separation and “drawdown” payments identified in the report and seek recovery of payouts “that are inconsistent with the City Code or any other applicable laws.”

The audit — which both state and city officials emphasized was not yet complete, because the city has 30 days to review and recommend adjustments — began more than a year ago, and was triggered by an outcry from residents last year in the wake of a fiscal crisis. It was conducted in two parts; the first part, an examination of separation payouts and drawdowns of accrued time to union and non-union employees, found that the city had failed to take corrective action for over two decades after audits in 1992 and 1996 identified a number of instances in which the city paid employees for accumulated time that were inconsistent with the city’s code or contracts.

The second part, which focused on the city's overall finances, found that the city mismanaged funds that resulted in operating deficits totaling $8.5 million over the past four years.

Last year, council members Anissa Moore and John Bendo voted against a $2.1 million borrowing measure to cover payouts in the 2017-18 fiscal year to 57 union and non-union employees — including a number of payments to employees who remained on the payroll, and a $108,000 payment to Schnirman. The dissenting votes led to the rejection of the measure.

“The comptroller’s draft report validates what I’ve been saying since uncovering this scandal last year,” Bendo, now the council’s vice president, told the Herald. “The council should have taken action immediately at the time. That a majority of the council did not, in my opinion, was an abdication of responsibility. Hopefully, the report will prompt the full council to come together to take the necessary corrective actions now.”

Former city manager was paid too much

According to the draft audit, Schnirman was overpaid by $52,780. He was paid $73,113 for 100 percent of his 878 unused sick hours — more than the City Code’s stated rate of 30 percent, which auditors calculated to be 263 sick hours totaling $21,934. Schnirman’s employment contract also specified that he should be paid 30 percent.

Additionally, Schnirman received $34,910 for 419 unused vacation hours, more than the 50-day cap in the City Code.

“In the absence of a preexisting ordinance or local law amending the City’s Code, an amendment to the former city manager’s employment contract or a court decision/order stating otherwise,” the auditors wrote, “we question whether the payment to the former city manager in the amount of $52,780, or 48.9 percent of the total payment, is consistent with this individual’s employment agreement with the city.”

Schnirman declined to comment, but referred to statements he made last month, after Town of Hempstead Receiver of Taxes Don Clavin, a Republican running against Democratic Town Supervisor Laura Gillen this year, called for his resignation.

Schnirman, who did not sign his payout forms, said that he welcomed “any and all professional reviews of how the City of Long Beach has processed and compensated earned leave obligations over a period of many years and several administrations.” He said he did not calculate or process his payment because “that would be inappropriate,” adding that his records were submitted to the payroll department.

“If a professional review shows the City of Long Beach made any error in my payment,” Schnirman said in a statement, “I would seek to return any funds paid in error, as I trust anyone would do.”

Capozzolo wrote that the city had offered retirement incentives to both union and non-union em-ployees that provided more than the 30 percent sick leave entitlement outlined in the City Code and Civil Service Em-ployees Association contract.

“One purpose of the comptroller providing a draft report . . . is to provide the city with the ability to be heard and respond to the report, so that when it is made final — public — it might better reflect a complete picture of what occurred,” Capozzolo wrote. “Doing otherwise would deprive the city of its due process before the comptroller’s office and fundamental notions of fairness.”

Indeed, auditors acknowledged an early-retirement incentive in 2012 for both Civil Service Employees Association members and exempt, or non-union, employees that was approved by the council.

According to the audit, the city’s acting comptroller and corporation counsel staff stated that the city has “necessarily” interpreted the 30 percent sick leave entitlement in the City Code “to mean that exempt employees shall be entitled to no less than 30 percent of the total number of sick days accrued, multiplied by the rate of pay at the time of separation,” and that there was nothing restricting the city manager from authorizing more than the minimum entitlement in the code.

But the auditors criticized that practice, saying that the council should have amended the City Code to specify the new terms for leave payments and questioned their appropriateness.

As far back as 2008, previous city managers provided incentives to employees who were paid up to 100 percent of sick time, and that “it has been the city’s practice since at least 2014 to pay exempt employees 100 percent of all accumulated leave balances at separation,” according to the report.

“Corporation Counsel staff informed us that it has been the city’s unwritten policy to grant exempt employees the leave accrual and separation payment benefits given to CSEA employees,” the auditors wrote. “However, the corporation counsel staff could not provide details about who had approved this unwritten policy, when it went into effect or why an unwritten policy would supersede the City Code.”

It was just one of several examples of separation payments that could not be supported by local policy or contracts, including $471,799 in separation payments to retiring police officers last year for all accrued vacation and compensatory time.

“Officials could not provide us with documentation that the practice of paying for leave amounts in excess of amounts provided for the City Code was approved by the Council,” auditors wrote. “This can result in additional costs to the city that are significantly higher than the adopted budget.”

Drawdowns

Auditors also questioned the appropriateness of nearly $225,000 in drawdowns of accumulated time to eight employees who remained on the payroll, including Agostisi, who was appointed acting city manager in January.

Agostisi, who has worked for the city for 12 years, received a $128,000 payout in 2017 because he had intended to leave for another job, but tried to return the payment when he decided to continue working for the city.

According to the audit, Agostisi received $119,855, or 80 percent of his unused leave accruals, in November 2017, which the audit attributed to the terms of an agreement he reached with the city in exchange for delaying his proposed resignation. The remaining 20 percent would be paid when he left the city’s employment.

According to the original agreement, signed in December 2016, Agostisi would “delay his resignation until at least January 27, 2017 in exchange for, among other things, 100 percent of his accrued leave to be paid within 10 days of separation.”

“Corporation Counsel and the city amended the agreement on October 8, 2017 to provide that corporation counsel receive 80 percent of the payment while still employed by the city,” the audit states.

Under city code, however, auditors said that Agostisi’s drawdown of accrued time should have been limited to 40 hours, or $2,918. The auditors also questioned the amended terms of the agreement.

“It is unclear,” they wrote, “whether the city could enter into this agreement with corporation counsel to provide a ‘terminal payout’ that appears inconsistent with the City’s Code for exempt employees’ separation from service payments.”